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Neiman Marcus Bankruptcy: More than Debt and Coronavirus to Blame

Recently, Neiman Marcus did the inevitable and filed for Chapter 11 bankruptcy in an effort to put $4 billion of its existing $5.1 billion debt behind it and restructure for the “new normal” after COVID-19.

Under the new agreement, the Neiman Marcus Group has secured debtor-in-possession of $675 million financing to continue operating through the proceedings, and an additional $750 million exit financing to “fully refinance the DIP financing and provide additional liquidity,” a company statement reported.

With plans to emerge from bankruptcy in the fall, the company said temporary closures of its 43 namesake department stores, two Bergdorf Goodman, and 22 Last Call discount outlets have been extended until May 31, with selective reopenings planned as local conditions allow.

Currently, it is offering curbside pickup at ten stores, and two stores in Atlanta and NorthPark, Dallas are open by private appointment.

History repeats itself

An in-depth article in D Magazine from 2010 reads pretty much like the latest news, only the names and size of the company’s total debt – $2.3 billion then and $5.1 billion now – have changed.

After Warburg Pincus and Texas Pacific Group acquired the company in 2005 and failed to take it public in 2013, they sold it on for $6 billion to Ares Management and Canada Pension Plan Investment Board (CPPIB) later that year, pulling out some $3.2 billion in value for a 2.7 multiple. The Wall Street Journalcalls today’s bankruptcy filing a “blow” to Ares and CPPIB.

Since then, the company has struggled to service interest payments, let alone its debt principal. Last summer, the company refinanced to push out due dates for its loans to 2023 and 2024, but that also increased debt expense to some $300 million annually. In April, it failed to meet its $5.7 million interest payment, setting up today’s filing.

While things are still fluid, speculation continues that Saks Fifth Avenue’s owner Hudson’s Bay Co. could emerge as a potential buyer, as it has long desired to add Neiman Marcus to its portfolio. It sold its Lord and Taylor operation to Le Tote last year for $100 million, but retained ownership of L&T’s real estate, which it can reassess or redevelop beginning in 2021.

In retrospect, it’s clear that Neiman Marcus never recovered from the 2008/2009 recession and has been struggling ever since. If that recession was a knockdown blow to Neiman Marcus, then the one-two punch from a health crisis combined with the pending economic downturn may be its knockout.

This one-two punch is different

“Back in my days at Bergdorf Goodman, if the market dipped, people stopped shopping for three days, but then they were back at the mark,” says Greg Furman, founder of The Luxury Marketing Council and who was mentored by famed Stanley Marcus when he served as senior vice president of marketing at Bergdorf Goodman in the 90s.

“But now in the aftermath where people go into defense, it’s going to take longer to get back to any normalcy in selling, if it ever gets back to normalcy,” he continues.

From Furman’s perspective, the company came too late to understanding the implications of digital retail after the recession. “With all respect to top management, they didn’t bring a sense of urgency to online marketing. Luxury retail overall was the last sector to embrace digital.”

While Neiman Marcus dragged its feet in digital, chief rival Nordstrom was aggressively pursuing it. As a result, NeimanMarcus.com’s monthly visitors track less than half that of Nordstrom.com’s since 2017, according to data compiled by SimilarWeb.

In April 2020, when its online performance was most critical, Neiman Marcus tracked 10.2 million visits, compared with 35.7 million for Nordstrom.

And while Neiman’s April traffic was 6% higher this April than last, SimilarWeb reports the largest daily spike occurred on April 19 when the news broke of its pending bankruptcy filing. Likely people were looking to snag great deals there.

Monthly visits to Neimanmarcus.com and Nordstrom.com
Neimanmarcus.com and Nordstrom.com Monthly Visits thru April 2020COURTESY OF SIMILARWEB

While Neiman Marcus CEO Geoffroy van Raemdock reports the company has “achieved higher omni-channel penetration,” the comparison with Nordstrom suggests otherwise.

On the other hand, Steve Dennis, currently founder of Sageberry Consulting and former senior vice president of strategy and multichannel marketing at Neiman Marcus, takes issue with comparing Neiman Marcus’ traffic and Nordstrom’s because Nordstrom targets a broader customer base and has more than twice as many stores, which tends to drive online traffic.

However, he does concede, “Neiman’s was definitely slower than Nordstrom in driving more harmonized shopping, innovating the experience more broadly, and attracting younger consumers.”

Dragging digitally

Tom Mirabile, founder of Springboard Futures trend consulting firm and who worked for nine years with Neiman Marcus in the 1980s and 1990s, agrees that Neiman Marcus took its eye off the ball digitally.

“In the last decade, new realities, like channel expansion and the luxury consumers’ unexpected comfort level with digital retail, have eroded the value of personalized service and expertise which was an unwavering focus for Neiman Marcus,” he says.

“Delivering a harmonized cross-channel retail experience required the adoption of new technologies and analytical infrastructures, and a different breed of buying teams with the skill needed to identify new risks and opportunities and react to them quickly,” Mirabile continues.

One can’t help but wonder if Mr. Stanley, as he was called, and former CEO Burt Tansky, who joined the company in 1989 and was promoted to lead it 2001 before retiring in 2010, had been around over the last decade, if they wouldn’t have felt the urgency to get cracking at digital engagement.

“Mr. Stanley had such a personal drive,” shares Furman. “He lit a fire in the hearts of the customers and the institution,” which was carried forward by Tansky. “It is hard to find that level of passion and engagement.”

Culture devolved from entrepreneurial spirit to managerial process

With the changes in both leadership and ownership over the last decade or so, Neiman Marcus devolved from its originating entrepreneurial spirit to a corporate mentality. The result: it lost the passion.

“Neiman Marcus buyers were often career experts in their categories,” shares Mirabile. “They passed that expertise on to sales associates.”

Back then, the corporate culture was infused with passion for finding the best-in-class products and delivering them with best-in-class service to the Neiman Marcus customers.

“All of this supported an unwavering focus on the guest and on creating a truly unique experience for them through superior assortments, services, and controlled promotion,” Mirabile continues.

From Furman’s vantage point, the managerial structures often put into place when the driving entrepreneurial force is replaced by professional management creates “too many places to hide.”

Mirabile feels much the same way, but expresses it differently. “Neiman Marcus seemed unable to pivot its core strengths with sufficient alacrity to retain (or gain) the interest of an increasingly distracted and disloyal consumer.”

In essence, Neiman Marcus lost the customers’ loyalty because the company lost its loyalty to their customer. “Too soon, the bedrock on which Neiman Marcus had built its success turned to quicksand,” Mirabile asserts, adding that Neiman Marcus created the concept of curated assortments, which has now been hijacked by the influencer trend.

The result, Furman believes, is that in the eyes of Neiman Marcus’ best customers, its leadership in style began to disappear. “It’s led to a homogenization of luxury retail,” he says.

And as Neiman Marcus became less differentiated in the eyes of its customers, it took its eyes off the real prize: Getting greater share of wallet from the most elite customers. The digital tools at its disposal should have made that possible, but the company either didn’t exploit them or didn’t know how to use them effectively.

“A senior executive at the company once said to me, ‘Never tell yourself that you know who your customer is; that’s when you stop thinking about who they want to be,’” Mirabile shares.

Mining data instead of minding the store

Perhaps Neiman Marcus’ management were focused solely on the customers’ profile data, which only reveals who the customer is. But for understanding who they want to be, those insights can only come from time spent on the sales floor interacting personally with the customers.

That was a lesson learned early by Mr. Stanley from his grandfather Marcus, who held a seat of honor by the front door of the flagship store where he greeted customers daily.

I’m not sure what the Neiman Marcus management team has been minding recently, but it is pretty obvious they haven’t been “Minding the Store,” as described in Stanley Marcus’ autobiography.

Luxury retail after coronavirus

As for the future of the luxury market without a Neiman Marcus or Bergdorf Goodman, both Furman and Mirabile don’t believe it will come to that in the short-term, but it may come eventually as it did for Barneys.

We all see even bigger challenges for Neiman Marcus, as well as every luxury retailer, in the new post-coronavirus world. We ask:

  • What role does a multi-brand luxury department store, like Neiman Marcus, play in a world where its well-heeled customers are afraid to go to a store?
  • How much are people willing to spend when their families and friends are threatened both physically and financially?
  • What does luxury mean when the very act of dressing in luxury-brand finery underscores the widening chasm between the haves and the growing number of have-nots?

“It’s going to be a major reset,” concludes Furman. “Everybody knows that the definition of luxury is no longer about stuff and conspicuous consumption. That’s old news. Now on the ascendant is the connection with family and friends. I don’t know if any company has figured out the implications of that.”

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